Editorial: How Uber, Lyft accelerated into a traffic jam

Protesters stop traffic on Market Street during a demonstration outside of Uber headquarters Wednesday, May 8, 2019, in San Francisco. Some drivers for ride-hailing giants Uber and Lyft turned off their apps to protest what they say are declining wages as both companies rake in billions of dollars from investors. Demonstrations in 10 U.S. cities took place Wednesday, including New York, Chicago, Los Angeles, San Francisco and Washington, D.C. The protests take place just before Uber becomes a publicly traded company Friday. (AP Photo/Eric Risberg)

Photo: Eric Risberg / Associated Press

Uber’s much-anticipated stock market debut arrived Friday with all the promise of a backfiring gypsy cab. The company’s $82.4 billion initial public offering was enough to mint a few billionaires and fuel its continuing quest to turn a profit, but Wall Street’s tepid reaction betrayed the unshakable suspicion that Uber and its ilk have been taking us for a ride in more than the literal sense.

The taxi disrupter’s chief rival, Lyft, which benefited from a contrast with Uber’s over-the-top corporate crudity but relies on much the same questionable business model, also suffered an underwhelming IPO in March. It followed that act last week by revealing that it’s hemorrhaging money at an even faster clip than Uber.

The San Francisco companies were the twin taxis of the apocalypse for traditional cabs, which were all but asking for someone to make their obsolescence official. Thanks to them, urban and suburban transportation has become dramatically more accessible and convenient across the country and globe. So what went wrong?

Their reliance on gig work, a staple of Silicon Valley’s success, is one source of strain. It was evidenced by Wednesday’s strike by Uber and Lyft drivers, including a demonstration in front of the former’s Market Street headquarters.

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The companies built their customer bases with cheap fares on the backs of drivers who earn an average of $10 to $12 an hour and are treated as independent contractors rather than employees, which deprives them of benefits and protections and forces them to rely on a fluctuating cut of fares for all expenses. Incredibly, Uber acknowledged in a Securities and Exchange Commission filing ahead of its IPO that it expects drivers to grow more disgruntled because it plans to reduce their incentives.

The gig work model is under increasing pressure not just from the workforce but also from policymakers. In a ruling last year, the California Supreme Court set a strict standard for independent contractor status that frowns on tech companies’ creative reclassification of de facto employees. The Legislature is considering further action.

A new study quantifying the companies’ broader impact could help justify further government intervention. Conducted by San Francisco transportation official Joe Castiglione and University of Kentucky researchers, and released on the day of the strike, it found that traffic delays in the city increased 62% over the first six years of the decade and attributed nearly two-thirds of that to Uber and Lyft. Such data could strengthen the case for local taxes on ride-hailing and congestion pricing affecting all private vehicles.

It’s remarkable that the companies have imposed such burdens on public and human resources without making money. Uber blew nearly $2 billion last year, while Lyft lost more than half as much in the first quarter of this one. It didn’t help the latest IPO that Uber doesn’t seem to know how it will turn that around, though it is ramping up other lines of business such as food delivery and vehicle automation.

The greatest force for the companies’ success or failure is, of course, their customers. Uber’s SEC filing noted that it lost “hundreds of thousands” of customers in days after the #DeleteUber movement took off on social media, driven by revelations of profiteering, sexual harassment and other excesses at the company. Not that most of the defectors forswore such services altogether: Lyft gained many of the customers Uber lost. The question is whether the tech taxis will remain harder for customers to resist than they are for the companies, drivers and cities to sustain.

This commentary is from The Chronicle’s editorial board. We invite you to express your views in a letter to the editor. Please submit your letter via our online form: SFChronicle.com/letters.